125
SUMMIT BANK LIMITED MULTAN ROAD BRANCH An Internship report Submitted in Partial Fulfillment For The Degree of Masters of Science In Accounting & Finance AMNA HAMID
SUMMIT BANK LIMITED
MULTAN ROAD BRANCH
An Internship report
Submitted in Partial Fulfillment
For
The Degree of Masters of Science
In
Accounting & Finance
AMNA HAMID
Session (2008-2010)
Department Of Accounting & FinanceKinnaird College for Women, Lahore
EXECUTIVE SUMMARY
“THE PURPOSE OF STUDY WAS TO KNOW ABOUT SUMMIT BANK LIMITED
AND TO ANALYZE THE FINANCIAL STATEMENT. “
In this report the Summit Bank’s history, mission, vision and services as well as
management is mentioned. After this the analysis of financial statements is conducted
which shows where the Banks is standing.
Banking sector of Pakistan has been transformed within a short period of 5 years from a
sluggish and Government dominated sector to a much more agile, competitive and
profitable industry.Speed and sequencing of banking sector transformation and its role in
promoting economic growth is now a leading story of a sector succes.Within Pakistan
SBP offers a story of what effective leadership of regulator and change management and
corporate governance can achieve and offer.Outside pakistan it is serving to offer rich
lessons in what difference governance of regulator can make and how bank restructuring
and privatization can change the lanscape of of the industry.
Summit Bank Limited started operations in August 2006 and became a profitable entity
within one year.AHBL had started off with a high capital base and is positioned to take
advantage of the business synergies and complementaries afforded to it by its sponsoring
group.The bank has a quality management team, a first class technology platform, and
commitment to global practices.Its business strategy is based on the “block-building”
principle wherein profitable niches are tapped progessively.
I did my 12 weeks internship in Summit Bank Limited Multan Road Branch.During
internship I was rolled over in departments.
Summit Bank made heavy investments towards enhancing its capabilities in the area of
automation and technology. It is well positioned to meet client needs, with improved
competitive advantage.
During my twelve weeks internship in Summit Bank Multan Road Lahore is spend one
or two weeks each in following departments:
Account opening department
Clearing department
Trade finance department
Working these departments was a great learning exposure for me. When I conduct
financial and trend analysis of Summit Bank I found that its financial position is
improving year by year. Comparative study with other banks shows that it is somewhat
better then other banks. I concluded that Summit Bank is performing very well.
ACKNOWLEDGEMENT
My creator, my best friend and mentor, who bestowed on me the meaning of life.
“ALLAH” who granted me a wealth of knowledge, love and respect to share with my
fellow beings. He gave me courage to pursue my passion against all odds.
My Parents whose raising gave me character and a compassionate heart.
I pay my thanks to Dr. Nikhat Khan Head of Accounting & Finance Department of
Kinnaird College for Women enabled me to complete this assignment.
I also pay my gratitude to my teachers and Ms Manal Talat Coordinator, Accounting &
Finance who’s cooperation on every step of this demanding task is highly appreciatable.
Without their cooperation it was not possible to complete this task.
My heartily thanks to Staff of Summit Bank limited, Multan Road Branch for their
cooperation.
Table of Contents
Description Page No.
Introduction of report------------------------------------------------02
History of the organization------------------------------------------07
Management of the organization------------------------------------21
Field of activities------------------------------------------------------26
Work done by me-----------------------------------------------------78
Financial analysis-----------------------------------------------------85
Dilemmas faced by organization------------------------------------103
Recommendation------------------------------------------------------104
Conclusion-------------------------------------------------------------105
Reference---------------------------------------------------------------106
Annexure---------------------------------------------------------------107
INTRODUCTION TO REPORT / OBJECTIVELY
The core objective of preparing this report is to express my learning during the 12
weeks period of internship. This is the mirror of my practical exposure that is
originated through time spent in “Summit Bank Limited”.
The report is about Summit Bank its products, field of activities and its financial
analysis. In the report, SWOT analysis is conducted so that I may able to give an
authenticated approach to problems and Dilemmas faced by the Branch. When I
conduct comparative analysis of operations, products offered and funds used, I
found it far better as compared to other banks working in Lahore.
Management style is somewhat participative and its culture is friendly and
cooperative.
I learnt a lot of different fields, and organizational behavior in real world
phenomenon which gave me practical knowledge of what I have studied theoretical
in Msc Accounting & Finance.
WHAT IS A BANK?
A bank is a financial institution that offers the widest range of financial services. These
financial institutions play a vital role throughout the world’s economic system. Caircross
defines bank as:
A financial intermediary and a dealer to create credits
A bank or banker is a dealer in credit or more properly a dealer in money. It is an
intermediate party between the borrower and the lender. It borrows from one party and
lends to another.
The system of common settlement of receipts and payments have been derived from the
school of thought of the ancient “Romans” temple banking, to develop trade and trading
relations with each other nations. Banks are of different types. The term “Commercial
Banking” is a throwback of commercial loan theory. The theory holds that the bank
assets (except for cash) should consist exclusively of commercial loans that are short-
term loan to businesses to financing the production and transportation of goods.
Among the services provided by the commercial banks, two services are very important;
Accepting deposit
Lending loans
Other functions include safekeeping of valuables, financial advising, cash management,
offering trust service, selling insurance policies, retirement plans and offering security
brokerage services, etc.
The banking structure of Pakistan
The banking structure of Pakistan consists of State Bank of Pakistan, Commercial Banks,
Exchange Banks, Cooperative Banks, Saving Banks and specialized Credit Institution.
“ Banking means the accepting, for the purpose of lending or investment, of deposits of
money from public, repayable on demand or otherwise, and withdrawal by cheques,
drafts, order or otherwise”.
VARIOUS ROLES OF BANKS
The Intermediation Role
Transforming savings received primarily from households into credit (loans) for business
firm and others to make investments in new buildings, equipment, and other capital
goods.
The Payments Role
Carrying out payments for goods and services on behalf of their customers (such as by
issuing and clearing checks, wiring funds, dispensing currency and coin, etc.)
Role as a Guarantor
Standing behind their customs to pay off customer debts when those customers are
unable to pay (such as by issuing letters of credit to support international trade and to
back customer issues of commercial paper), which makes it both easier and cheaper for a
bank’s customers to obtain credit elsewhere in the financial marketplace.
The Agency Role
Acting on behalf of customers to manage and protect their property or issue and redeem a
customer’s securities (usually provided through the bank’s trust department).
The Policy Role
Serving as a conduct for government policy in attempting to regulate the growth of the
economy and pursue social goals
HISTORY OF SUMMIT BANK LIMITED:
Arif Habib Group is among the largest most, most innovative and fastest
growing business group in Pakistan.In addition to financial services(Asset
Management, Brokerage Services, Corporate Finance and Project Advisory,
Private Equity and commercial Bank), the group has also interest in
fertilizer, cement and real estate.
This has made possible by a strong brand franchise built on decades of first-
rate services to clients. Managing assets in excess of PRs.37 billion (US$
617 million), the group holds interests in the securities brokerage,
investment and financial advisory, investment management, commercial
banking, commodities, private equity, cement and fertilizer industries.
The Group takes pride in its orientation towards client service. It believes
that its key success factors include continuous investment in staff, systems
and capacity building, and its insistence on universal best practices at all
times.
ARIF HABIB SECURITIES LTD:
The holding company o the group. Holds controlling interest in the
enterprises listed below.
ARIF HABIB LIMITED:
The securities brokerage company. Member of all three srock ewchanges
and the national Commodities exchange.Manages a number of mutual funds
investment plans.
The commercial bank with the mission to be “The bank for everyone”
The proposed private equity venture with the objective to develop a vast new
Industry in Pakistan
The upcoming commodities firm at the (DMCC)
Arif Habib Limited is one of the fastest growing commercial Banks of the country
supported by the strong sponsorship of Arif Habib Group.
AHBL started off with a high capital base and is positioned to take advantage of
the business synergies and complementaries afforded to it by its sponsorship
group. The bank has a quality management team, a first-class technology platform,
and commitment to global practices. Its business strategy is based on the “block-
building” principle wherein profitable niches are tapped progressively.
Progressively.
The Bank has an Authorized Share Capital of 6.0 Billion and Paid-up Share
Capital of 5.0 Billion. The management intends to double it in a short period by
injection of fresh capital which will strengthen the bank further.
The bank has a network of 35 Branches/Sub Branches.the branch network covers
Sindh, Punjab, NWFP and Azad Jammu and Kashmir. The bank plans to open
further offices to better cover all four provinces within a short time span.
All branches are Real Time Online providing customers the facility to deposit at or
without incurring any additional charges making banking with us a faster, relable
and a convinient experience.
OBJECTIVE:
To be a Universal Bank in terms for providing products and services in all key
segments of Banking.
BUSINESS APPROACH AND CORE VALUES:
It is their business objective to be a Universal Bank in terms of providing products
and services in all key segments of banking i.e. Corporate , Wealth Management,
Commercial Mid Market/ SMEs and Consumer Banking.
Branch expansion plan is carried out to have a network of 100 Branches by
2011.The projected Branch network is based on centralized processing centre
(factory and boutique concept) with secure and real time IT capability. Hence the
delivery Channel configuration is dependent upon the potential in each location in
terms of size, Product Delivery Template and Head count for each Branch.
In terms of Statuary capital Requirement, they are determined to meet and in fact
exceed the Minimum Capital Requirement-MCR benchmark via injection f capital
and retention of retained earnings. Mandatory allocation of 20% of after tax profit
as Free Reserves until such time our free reserves are equal to MCR will further
strengthen their equity base.
Business and branch Network:
Summit bank is currently operating with 40 branches throughout Pakistan
(breakup is given in coming part).The bank’s strategy is to establish a network of
100 branches during the next three to five years. Several new sites have already
been identified at strategic locations. All branches are online, equipped with state
of the art technology capable of providing Real Time Banking services to the
clients. A professional team has been developed to meet the expectations of
demanding customers. This is line with the bank’s strategy to build infrastructure
of international standard to attract and retain a sizeable client base.
The growth in the economy provided them numerous opportunities and they
remained selective pursuing business through which strike a balance between
growths and prudent like risk taking and diversification. Summit bank’s
performance in 2007 was a result of the pragmatic and will planned efforts of the
management to attain present strategic goals aimed at providing quality services to
their customers and at the same time enhance the shareholders value.
Despite the high growth level, they continued to ensure the high customer
satisfaction and service quality levels are maintained and they are appreciative of
the trust and confidence that their customers place in them. Management firmly
believe that the success of the Bank lies in expanding there way of financial
services and seamlessly delivering innovative solutions to meet customers
requirements across all the platforms.Accordingly, they work closely with their
customers in order to understand their business needs and to address them with
high quality tailored financial products so that they are viewed as a strategic
partner in the business growth. Management is pleased and encouraged to receive
a very favourable response to their endeavours from their respective customers.
In all, management believes that the economic outlook for the coming year is
bright with the right mix of products and services and their commited workforce;
they can deliver yet another superior performance next year.Bank will continue to
build infrastructure, leverage the cutting edge technology in plan introduce
products and services , manage risk efficiently and effectively and generate
alternative revenue streams.Management has ambitious plans for the coming year
and they are all ready to make it happen to the benefit of their stakeholders
Bank’s focus and energy for the coming year evolve around customer base and
look to expand network of branches throughout the country.Summit Bank has a
network of 35 branches/Sub branches in major districts of Pakistan.The branch
network covers Sindh,Punjb,NWFP, and Azad Jammu and Kashmir and details are
as under:
AUTOMATION & TECHNOLOGY
Information technology and its optimum use greatly facilitate work and increase
performance potential. Summit Bank is in the forefront of providing customers online
and timely services. For this, automated and technologically sophisticated work flows
and systems are a prerequisite.
Summit Bank continually invests in upgrading these systems and similarly training the
human resource. The ultimate aim is to achieve both service and cost optimization.
The in-house developed software hplus has been successfully installed in all the branches
and has been well received. Plans are underway for the installation of ATMs and joining
a Switch Group of other prominent banks.
PRODUCTS & SERVICE LINE
Summit Bank has a dedicated team of banking professionals with a thorough knowledge
of Banking products and markets. Their aim is to contribute positively to the
development of Banking and Capital Markets by capitalizing on Summit Bank’s
expertise in product innovation and customer service.
Summit Bank offers the largest product range available with any Banking institution in
Pakistan. Their best selling products are:
Non stop banking
24/7 cash withdrawl facility
Real time online Banking
Free unlimited online transactions
CORPORATE BANKING
Current Accounts (Pak Rupees)
Foreign Currency Accounts
Clearing and Fund Transfer
Trade Services
Project Financing
CONSUMER BANKING
Current Account (Pak Rupees)
PLS Account
Saving Accounts
Term Certificates
Saving Deposit Lockers
CONSUMER FINANCE
Current Account (Pak Rupees)
Personal Loans
Personal accidental insurance
ATM withdrawl insuranse
Home finance
Foreign Currency Account
FREE E-SERVICES INCLUDING:
Free Ecash issuance-ATM card
Free ealerts-sms alerts for the transactions you do with them
Free etopup-recharge your mobile balance
Free evoice-24/7 customer care center at toll free number 080024252
Free ebanking-internet banking
free phone banking
Summit Bank is committed to the personal welfare and professional development of all
its team members. It realizes that proper training of human resource is essential, not only
for a more productive and satisfied work force but also for a homogeneous corporate
culture.
The bank continues to follow its strategy of hiring batches of young and energetic
management trainees who are sent to a Training and Development Center for training in
all areas of banking. The Training and Development Center is a state of the art facility
with an impressive faculty. At the same time short courses are continually conducted for
other team members to only enhance their skill levels but also increase their performance
potential.
Lately, Surroor investments Ltd(SIL) have taken over Summit Bank and the board of
directors of the bank has been changed.SIL has 60 percent shares of Summit bank
limited.
In addition, SIL has also signed share purchase agreements with the principal sponsors of
My Bank Ltd. And Atlas Bank Ltd, respectively, and made down payment in each case.
Acquisition of My Bank has been completed on August,18 2010 and after merging with
Atlas Bank it will have a branches over 160 and total assets of about Rs.100 billion.
The name of the new bank is Summit Bank Limited.
CREDIT RATING
The Summit Bank’s Medium to long term rating increased to A and A-2 in the short
term. These ratings have been assigned by PACRA, Pakistan’s
Leading rating agency. These rating denote better risk absorption capacity
Stemming from enhanced equity as well as well-maintained credit portfolio.
RATING DEFINITIONS:
A1+:
Obligations supported by the highest capacity for timely repayment.
AA- VERY HIGH CREDIT QUALITY:
‘AA’ ratings denote a very low expectation of credit risk, the capacity for timely payment
of financial commitments. This capacity is not significantly vulnerable to foreseeable
events.
Organizational Structure
Head Office:
Karachi
DECISION MAKING
The branch follows centralized patterns as all approvals are given by centralized authority
except for a few cases. Top management had set the procedures and regulations and now
the employee have to follow those regulations.
CULTURE
The bank has a bureaucratic culture. All the tasks performed are routine based and hardly
any change is done in procedures. The bank has stories and myths told through bi-annual
news letter. Interior of every branch is same carrying a very corporate look.
VISION
We are committed to be recognized as preferred supplier of financial services to the markets we serve.
MISSION
Our mission is to differentiate ourselves as an institution built on Trust, Integrity, Good Governance, and Commitment to deliver value to all stakeholders i.e. customers, creditors, employees, investors, and community at large.
Reach out and provide financial services to under-served and un-served customer segment.
CHAIRMAN’S MESSAGE
“Our Core philosophy of honesty, transparency in customer
dealings Product innovation, excellence in customer
service and our commitment to be a responsible corporate
citizen.”
H.E.Sheikh Hamdan Bin Mubarak Al Nahayan
MANAGEMENT OF ORGANIZATION:
HUSAIN LAWAI
PRESIDENT AND CEO
SYED MOHAMMAD ANWAR LUTFULLAH
HEAD OF OPERATIONS & INFORMATION TECHNOLOGY
MOHAMMAD ZAHIR ESMAIL
HEAD OF RETAIL/BRANCH BANKING, CONSUMER, SME, COMMERCIAL
BANKING, CORPORATE AND INVESTMENT BANKING DIVISIONS
ASIF QASIM
HEAD OF TREASURY DIVISION
SYED ASIF ALI
HEAD OF RISK MANAGEMENT DIVISION & HEAD OF CREDIT AND CREDIT
ADMINISTRATION & CAD
PERVEZ MOBIN
HEAD OF HUMAN RESOURCE MANAGEMENT, ADMINISTRATION &
BRANCH EXPANSION
GULRAYS KHAN
HEAD OF CO-ORDINATION AND CONTROL DIVISION
MUHAMMAD AMIN BHOORI
CFO & COMPANY SECRETARY
AZIZ MORRIS
HEAD OF INTERNAL AUDIT DIVISION
SYED MUHAMMAD ATIF
HEAD OF COMPLIANCE DIVISION
SUMMIT BANK MULTAN ROAD BRANCH LAHORE:
Valid city markets have their unusual importance regarding import business. They are
known as business and commercial hub of Lahore. Major commoditieis and Industrial
raw materials are being imported in these markets. Major industrials are routing prefer to
route their business through the banks situated in these areas. These markets are highly
profitable and important for banking sector.
MANAGEMENT OF SUMMIT BANK MULTAN ROAD BRANCH LAHORE
BRANCH MANAGEROMER KHAN
MANAGER OPERATIONSAHMER HAMEED
RELATIONSHIP MANAGER CREDITS AHMAD AWAIS
CUSTOMER RELATION OFFICERZAMURAD BUTT
SARA AHMAD KHAWARIQBAL RAZA
BUSINESS DEVELOPMENT OFFICERFARHAT QAYUM PIRACHA
CASH OFFICER MUHAMMAD USMAN ZUBAIR NAWAZ
IT Officer
DEPARTMENTS OF SUMMIT BANK MULTAN ROAD BRANCH:
Following departments operates in Summit Bank Limited;
Account Opening Department
Cash Dealing Department
Clearing Department
Local Remittance Department
Accounts Department
Trade Finance Department
Marketing Department
FIELD OF ACTIVITIES
ACCOUNT OPENING DEPARTMENT
The department that is responsible for opening and closing an account assumes immense
significance and holds a central place in the basic banking operations.
Details of the Account Opening Form
In the account opening form the client is required to provide the following information.
The first part establishes the Particulars of account which include title of account in block
letters as per CNIC, title to appear on ATM card and mailing address.
The second part is then Account information which include
Type of account to be maintained. The various choices offered are
Profit and loss saving
Current account
Daily Product
Basic banking
Other________
Customer relation
Individual
Joint
Currency in which the account is to be maintained/ operated. The currencies include
Pakistani Rupee
U.S. dollar
Pound sterling
Euro
JPY
The information to be provided in the account opening form is as follows
The client should inform weather the zakat to be deducted or not .
The client is supposed to provide the information whether the account
would be maintained singly (only one person operates the account) or
jointly (two or more than two persons maintain the account).
Name of the person who intends to operate the account is to be provided.
Provision of either Father’s or the Husband’s name is also a pre-requisite.
Occupation of the prospective account holder is also to be written.
Name and complete address of the employer is to be written.
Nationality is to be provided.
Country of residence is to be specified.
Telephone number is must.
The national identity card, of course is an integral part of the account opening
application.
Passport number, if the prospective client has got one.
Another requirement is the date and place of issue of the national identity card.
The prospective client also has to provide the name, address and relationship of
any one of his/her close relatives in order to facilitate the communication
problem. The clients often have a misconception that there next of kin might, if
some peculiar circumstances arise, get the profit out of his account but this is not
the case. The name and address of a close relative is only recorded in order to
undertake necessary communication when needed.
In case of a business concern there are two more things that are to be provided by
the business.
TYPES OF ORGANIZATION
The various types of organization which are present in Pakistan at present are:
Limited company
Public
Private
Partnership
Association/Club/Society
Sole-Proprietorship
The business concerns also have to give their full name, brief description of the business,
date of
Incorporation, and place of incorporation, national tax number, telephone number and fax
number.
The choice of either the deduction or non-deduction of Zakat also needs to be
highlighted. Zakat is deducted out of a Profit and Loss sharing account and not out of any
account maintained in any other currency. Moreover exemption from Zakat would only
be granted if proper proof of exemption under a law presently enforced in Pakistan is
provided.
Details of other account/s maintained with other branches of Summit Bank or other
banks are also to be given.
The name, signatures, and account number of the introducer is a very essential
prerequisite in order to facilitate the opening of an account. The introducer is a person
who already has an account in the same branch. It can also be a person from the staff of
the branch as well.
Then the client also has to put forth the instructions regarding as to whether the account
would be maintained on the basis of ‘either or survivor’, ‘jointly’ or ‘any one of us’.
After this three signatures of the client are needed and if it is an account of a business
concern then the rubber stamp of the company/organization is also needed below the
three signatures.
In case of a joint account all the persons unanimously might give the right to operate the
account to one person.
In case of account opened by a business concern there are some documents that are
needed to be attached with the account opening form. The details of these documents are
given below.
Limited Company:
Copy of certificate of incorporation
Memorandum of Association
List of Director’s
Copy of board resolution
Certificate of Commencement of Business
Copies of NIC of Director’s
Latest copy of Form-29
Partnership:
Partnership deed certified copy
NIC photocopies of all partners.
Partnership mandate for account signed by all the partners
A letter duly signed by all the partners containing the operating instructions of
the account also has to be taken
Club/Society/Association:
Copy of rules/ by-laws
Copy of registration (if applicable)
List of Executive member management committee/management board etc
Sole Proprietorship / Individual:
NIC/ Passport photocopy
Letter from Proprietor confirming “sole proprietorship”
There are two things that always accompany an account opening form;
Signature Specimen Card.
Cheques Book Requisition
PROCEDURE OF OPENING AN ACCOUNT
The Account Opening Form:
When a client comes to the bank, and makes a request for opening of an A/C. The officer
first gave him a prescribed application form.
Completion of the Form:
The name, occupation, and complete address of the person opening the account are
written in the columns provided in the form. One signature of the person is taken on the
face of the form and one is taken on the backside. These signatures should be usual
signatures and he would operate the account with them in future.
Specimen Signature Card (S. S. Card):
The signatures of the client are obtained on a specimen Signature card. These cards are
obtained in duplicate with two signatures on each card from the customer. Every time a
cheques is received for a payment from the client, the signature on the cheques are
verified by comparing them with the S.S. Card.
Issuance of Account Number:
When all the formalities are completed then the final approval of account has to be taken
from the Branch Manager. After obtaining approval of the branch manager an account
number is allotted to the customer and all the information is entered into the computer.
Then that account number is printed on the Cheque Book, S. S. cards and account
opening form.
Issuance of a Cheques book:
After opening an A/C with the bank, the A/C holder once again makes a request in the
name of bank for the issuance of a cheques book. The A/C holder mentions title of A/C,
A/C number, sign it properly and mentions the no of leaves he requires. Normally
Summit Bank issues a cheques book having at least 25 leaves. Every cheques book also
contains one leaf that is used for another issue of a cheques book.
Entry of Cheques Book:
Before issuance of a cheques book, the employee performs certain functions. They
include:
Stamping every leaf if the account is photo account
Enters it in the cheques book issue register.
After entry in the manual register,and in the sysytem the employee issues the
cheques book to the A/C holder after his/her signature on the register.
Recording in Computer:
After opening of account, all information regarding the account is entered into the
computer. Currently, a program named hplus is being used for this purpose. Record of all
the transactions regarding the account of a customer is kept updated in the computer.
PROCEDURE FOR CLOSING AN ACCOUNT:
The procedure followed for the purpose of closure of an account is described in the
following steps
The client who wishes to close an account first has to give an application, duly signed on
the pre-printed application of the bank. The client has to attach this application with the
liability form (explained below). The client can also give an application on a plain paper,
but correct signatures are very necessary.
Then it has to be made sure that if the account to be closed is a Saving,, or Foreign
Currency Account then the account balance before closing should be zero. In case of
these types of accounts the bank does not take any closing charges. If a client wishes to
close a current account then the bank charges Rs.150, so at the time of closing the
balance should be Rs.150.
Along with the application to close the account client’s Cheque book is also received
from him and then it is destroyed in order to prevent any misuse in the future.
A liability form is filled and sent to the Trade Finance Department and Credit Department
in order to check that the customer does not owe the bank a single penny in any regard. A
debit voucher and a credit voucher are also attached to the liability form.
When both of these departments approve that the customer does not owe any money to
the bank and the form is returned to the account opening department then the original
account opening form pasted in the ledger when the account was opened is marked
‘account closed’ along with the date on which it is so marked. One thing has to be taken
into immediate consideration that the account number allotted to the client (who has
closed his account), after closure of the account becomes useless and is not allotted to any
one in the future.
After approval of the liability form, it is sent to either the Foreign Currency Accounts
Departments or the Cash Department, as the case may be so that the officer who scanned
it in the first place could return the specimen signature card to the account-opening
department.
Once the S. S. Card is received back from the concerned official then the liability form,
the client’s application along with the specimen signature card is pasted in the ledger
right along side the original account opening form. The form has to be pasted with the
original account opening form even if the account was opened a decade ago. In the
computer as well all the entries and records related to that particular account are
permanently deleted by using the ‘close account’ option.
IMPORTANT DOCUMENTS USED:
Liability Form
This particular form is used when an account is to be closed. The staff of account opening
department, after filling in the name and account number of the client forwards this form
to the credit department and the trade finance department who upon receipt of such
liability form make required scrutiny so as to check whether or not the customer owes
some money to the bank or not.
Account Statement Request Form
This small form is used to request for the account statement for the desired period. The
client gets this Performa from the account-opening department and then, after filling it
up, gives it to the computer section that gives the statement to the client in printed form.
Issuance Requisition
This requisition is used by the staff to order for any thing (e.g. stationary) they need.
They write the type and quantity of the stationary they need, get it signed by the Manager
Operations, give it to the person in-charge of issuance of stationary who on receipt of this
requisition (duly signed) issues the stationary.
Debit and Credit Vouchers
These two vouchers are basically used when an account has to be closed. The debit
voucher shows as to how much amount has to be taken from the client’s account and the
credit voucher shows as to hoe much amount has to be credited as Bank’s income, in
order to facilitate the account closing process.
Application to Close the Account
This is a pre printed application of the bank in which the client fills in the account
number, the title of the account and the type of account and requests the branch manager
to close his account with the Bank.
Application to Change the Address
This is again a pre printed request form in which the client fills in his name, account
number, telephone numbers and the new address so that he could communicate with the
bank and receive all the notices, statements and other necessary document which the bank
might send through mail depending upon the circumstances.
Mandate Form Used By an Individual to Enable a Third Party to Operate The Account
An individual to enable another individual to operate hi/her account without changing the
title of the account uses this form. In this form the account holder certifies that the person
to whom he is giving the mandate shall be fully authorized to embark upon all possible
transactions with regard to this account unless and until otherwise specified.
CASH DEALING DEPARTMENT
This department of bank is mainly responsible for the handling of cash deposits and
encashment of cheques issued by the account holders. The following are the sections of
the cash dealing department
Receipts of cash
Encashment of cheques
Cash receipt section
The depositor uses depositor slip/vouchers for depositing the amount. Client fills these
vouchers, fulfilling all requirements.
Encashment of Cheques
Cheques encashment is made in four steps
Receiving of cheques
Verification of signatures
Computer terminal process
Payment of cash
CLEARING DEPARTMENT
One of the basic economic functions of banks is to receive deposits and to honor cheques
drawn upon them. So, cheques are a most commonly used instrument for making
payments by account holders.
Now the question arises that how these cheques & other negotiable instruments drawn on
one bank are deposited in other banks and money is transferred from one bank to another.
Clearing House has provided this facility. Clearing house facilitates different banks to get
their cheques drawn upon other banks to be cleared.
Cheques lodged in clearing constitute two types of clearing
Outward Clearing
Inward Clearing
Outward Clearing
When cheques and other negotiable instruments drawn upon other banks like MCB,
ABN-AMRO of the same city (as Lahore) are presented in Summit Bank Limited to
deposit them in the respective payee’s accounts, these instruments are lodged in outward
clearing of summit Bank limited.
When the cheques are presented in Summit Bank to be deposited in their respective
payee’s accounts, different stamps are put on cheques before their lodgment in outward
clearing.
Crossing the cheques
Crossing means two parallel transverse lines, drawn across the face of the cheques with
or without words written in between them. Crossing may be general or special. In
clearing, cheques are crossed specially. Cheques are stamped with bank’s name between
two transverse parallel lines to constitute special crossing. After the cheques have been
crossed specially, the holder cannot receive payment except through the banker named on
the cheques. Basic advantage of crossing is to save the instrument to go it from illegal
hands. If, crossed cheques is lost or stolen, there is no risk of wrong payment. So it is an
effective means of minimizing the risk of loss or forgery.
Clearing Stamp
After the cheques have been crossed specially, clearing stamp is put on the cheques and
other instruments, with the following day’s date, as these cheques would have to be
presented in their concerned drawee banks on the subsequent day.
Endorsement Stamp
It means anything written or printed upon the back of an instrument. So, at the end, the
cheques are endorsed in full (endorsed specially) by putting the stamp with words
describing “ Payee’s account Credited in Summit Bank Limited , Multan Road Branch,
Lahore”.
After putting these three stamps on cheques & other negotiable instruments, they are sent
to NIFT (National Institutional Facilitation Authority) with Add List. NIFT after
segregating the cheques of different banks delivers them to their concerned banks, which
constitute the inward clearing for those (drawee) banks.
Inward Clearing
Cheques and other negotiable instruments (PO, DD etc.) drawn on Summit Bank
Limited, Lahore, sent by other banks, constitutes the inward clearing of Summit Bank.
After having all the stamps and dates of cheques confirmed, the concerned drawer’s
accounts are debited (in Summit Bank Limited) and main branch’s account is credited by
the total amount.
Collection
When cheques and other negotiable instruments drawn upon other banks outside the city
(Lahore) are presented in Summit Bank Limited, Multan Road Branch, Lahore to
deposit in payee’s accounts, then instead of clearing, these instruments are lodged in
collection and constitute outward bills for collection. Cheques of cities, where Summit
Bank
Limited branch exists (e.g. Islamabad, Faisalabad etc.) are sent to that branch where these
cheques are lodged in is outward clearing. Otherwise, they are directly sent to the drawee
bank. Postage & other charges are deducted on account of payee according to Schedule
of Charges.
Accounts
It is probably the only department in the entire bank where there is almost no direct
customer dealing. Two types of accounts are there which are as follows:
Inter-Branch Accounts
Like other banks, Summit Bank Limited has a network of branches all over the country.
These branches in different cities are interlinked with each other through their
correspondent accounts in other branches. So, all payments from one branch to another
branch (in the same city or another) are made by debiting and crediting these inter-branch
accounts.
Inter-Bank Accounts
Like inter-branch accounts of a bank, different banks have correspondent accounts with
each other. Main branches of banks in a city maintain these inter-bank accounts. So,
money is transferred from one branch of a bank to another bank’s branch through these
inter-bank and inter-branch accounts.
The accounts department deals with various routine activities for the bank. The main
activities performed by it are
Budgeting
Reporting
Maintenance & depreciation of fixed assets
Miscellaneous functions
Budgeting
Accounts department of bank, for a year makes budget of branch. Fiscal year of bank
starts from January 01 and ends on December 31. The accounts department starts
preparing budget from October for the next year.
Procedure
The budget is based on forecasting through past performance
First of all, the bank reviews what are its sources of funds and where it can utilize these
funds?
The main sources of the bank are deposits, borrowing from other banks, borrowing from
SBP, bank’s paid-up capital, its reserve fund, profit generated by the bank.
The budget is submitted to the head office for recommendation and modification.
Monthly budget meeting is held by branch managers to analyze the monthly
performance. Budget and actual performances are employed and variance is computed for
analysis.
The management will then drive the reasons for the variance and take remedial measures
to achieve the targets.
Reporting
The accounts department, in the form of reports, clubs the details of various departments
together. Each and every minute detail is provided in weekly, monthly and annual
reports. The reports are submitted to head office, SBP and to the government.
The accounts department prepares many reports, of which the most common are
Statement Of Affairs
Income & Expenditure
Foreign Currency Report
Outstand Receipt Report
Maintaining Of Fixed Assets & Their Depreciation
Accounts department maintains the record of all the assets and charges depreciation on
them. The bank normally uses the straight-line method to compute the depreciation.
The accounts department prepares asset purchase report and asset sale report after every 6
months that helps in changing the depreciation. It is calculated on monthly basis and
charged yearly. Bank not only depreciates the existing assets but also the assets
transferred in and transferred out.
Miscellaneous Functions
The accounts department also performs some other miscellaneous functions like
Reconciliation Statements
Closing Entries
Foreign Exchange Forward Transaction
Reconciliation statements
The bank prepares reconciliation statement with head office and SBP
Head Office
Reconciliation with head office is done in reconciliation department. The branches send
their reports to the head office. They check the posting of all the entries if outstanding,
which has not been posted by branch or head office. The reconciliation is carried out in
the head office and accounts department handles quarries.
State Bank of Pakistan
The SBP keeps the record of every scheduled bank. The bank statements and statements
of SBP are reconciled on daily basis. Reconciliation is basically setting of outstanding
entries. The reconciliation statement contains two sides. One contains entries originated
from bank but not responded by SBP and on the other side entries originated by SBP but
not responded by bank.
Closing Entries
Accounts department also passes the closing entries on monthly, 6 monthly and yearly
bases to calculate the profit and analyze the overall performance for a certain period.
Foreign Exchange forward transaction
In the past, the banks had to keep their foreign exchange with SBP on the agreement that
SBP will purchase the foreign exchange on book rate and charge a fee for covering the
risk. This whole transaction was known as foreign transaction. Now this facility is not
available. Now banks can avail it by renewing their limit on old accounts with SBP.
Statements
The predominant functions performed by the accounts department can be categorized into
two broad categories.
Daily Activity Checking
Report Generation
Daily Activity Checking
All the operations performed in various departments of branch are computerized. The
functions are performed through the customized software of the bank called hplus. In
order to facilitate double-checking of all the transactions done, every concerned official
also passes vouchers. At the day end all the vouchers passed by various officers working
in different departments are given to Accounts Department. Furthermore the I.T.
department also prepares a report which constitutes of the computer print outs of all the
transactions / entries which have been fed into the computer system of the branch that
day.
Report Generation
The exact number of reports generated by the accounts department on a daily, weekly,
monthly, bi-yearly and yearly basis is somewhere in the bracket of 500. It is neither
necessary nor possible to get acquainted by all of these reports in a short period of time.
Some of the common reports are
Daily Advance And Deposit Position
Daily Exchange Position
Daily Fund Management
Closing Reports
Monthly Assets & Liabilities
Monthly Budget Review Report
Monthly Monitory Statement
Monthly Performance Review Report
Schedule Of Maturity Distribution
From these statements, five reports carry extreme importance. The five reports are
Daily position of advances and deposits
Statement of affairs
Daily exchange position report
Fixed assets statement
Month review of performance.
The Local Remittances Department
Besides cheques (the primary notes of exchange in a bank), banks also handle Promissory
Note, Bills of Exchange, Bank Drafts, Pay Orders, Traveler Cheques, Pay Slips, Call
Deposit Receipts; as negotiable instruments.
Pay Order (PO):
“Pay Order is a negotiable instrument made by the bank, on account of a customer, to pay
on order the specified amount”
Pay Orders are used to make payment or to transfer money, with in the same city. Pay
Order is always drawn on the bank that has issued it.
Making of a PO:
When a person requires a Pay Order (made by Summit Bank Limited, Lahore), he is
asked to complete the prescribed application form in which the amount of pay order is to
be stated. Certain amount of commission and advance tax is charged on issuance of pay
order. After having the total amount deposited in the bank (in cash or through cheques, in
case of account holder), pay order is issued in favor of the payee.
Like cheques, when pay orders issued by Bank, are presented in other banks to get them
deposited in the payee’s accounts, they constitute the outward clearing for those banks
and inward clearing for Summit Bank Limited, Multan Road Branch Lahore.
Demand Draft (DD):
“A Demand Draft is a negotiable instrument issued by the bank, on account of a person,
and drawn on its own branch in a specific city or on the branch of another bank in that
city (in case bank doesn’t have any branch there), requesting it to pay the specified
amount to the person named on it”.
Demand Drafts are used to make outstation payments or to transfer money, out of the
city. Therefore, a DD is always made for a particular city.
Making of a DD:
Suppose a customer requests his Summit Bank Limited, Multan Road Branch Lahore to
provide him a DD made on his account for a particular city like Islamabad.
Then, after having the total amount to be deposited with application form, demand draft
is issued in favor of the specified person in Islamabad (supposed) and is drawn on
Summit Bank Limited, Islamabad Branch. So, when this demand draft is presented by
payee in any bank, it constitutes the inward clearing of Summit Bank Limited, Islamabad
Branch.
Cancellation of PO & DD
After issuance of Pay Order, Demand Draft by Summit Bank Limited, Multan Road
Branch, Lahore, if any one of these has to be cancelled by the customer, it is returned in
the bank. Then, after deducting the cancellation charges of Rs.100, the remaining (net)
amount is paid to the customer through Cash Payment Voucher.
Advance Tax against Remittances
Advance Tax is deducted on issuance of PO & DD (when customers don’t have tax
exemption form) and credited in Tax on PO & DD account. Tax deducted has to be paid
to State Bank of Pakistan (SBP) with in one week of issuance of these instruments.
TRADE FINANCE
Trade deals with entry / departure of goods into / from one country to another country.
International trade basically is a consequence of an agreement between buyer and a seller
separated by geographical boundaries.
To ensure secured transfer of goods to the right buyer and a right seller, the services of
the Financial Institutions are of great importance. In this relation the banks have proved
to be not only dealers but also the leaders.
Trade finance
The term Trade Finance encompasses all banking transactions that are embarked upon in
relation to exports and imports. Now-a-days banks have become a compulsory assistant
to almost all the International Trade transactions. When trade is taking place between the
representatives of two countries (exporter and importer), the exporter involves his bank
(the Advising Bank) in the transaction, as he wants to feel secure regarding timely
payment of his remuneration in the required currency. On the other hand the importer
involves his bank (the Issuing Bank), in order to get a sense of security regarding timely
supply of the required product, in the required manner.
The Trade Finance Department has two predominant dimensions namely Exports and
Imports. Thus there are two processes that take place in international trade i.e. ‘the
buying process’ (the importer purchases the products from the exporter) and ‘the selling
process’ (the exporter sells the goods to the importer).
The buying process
The buying act exchanges one thing, usually currency, for another of equivalent value.
The objective of the buyer is to obtain the most competitive price and delivery with the
best quality. The buying process begins with locating the source of a good or service, and
ends when it is resold, stocked in inventory, or the service is completed.
Within the global market place, companies worldwide become the potential source of
goods and services. However, the objective remains the same for each purchase, to get
the best price with the best delivery and with the best quality.
The selling process
The selling process exchanges goods and services for currency of equivalent value. The
objective of a sale is to achieve the highest price for the goods while preserving the
relationship for continued business.
Trade finance can be categorized into two departments
Imports Department
Exports Department
The exporter and the importer might decide to carry on trade without the
IMPORTS DEPARTMENT
In the common words, import means bringing commodities into a country from outside
by sea or air. Stated differently, whenever there is a need of any commodity in a country
and if that commodity is not available the need for import arises.
Requirements to be fulfilled
When a person wants to import, he must have to register his name and his company’s
name. The registration was previously granted by chief controller imports and exports but
now the Export Promotion Bureau of Pakistan performs this task.
For Import Registration, the following basic documents are required:
Questionnaire duly filled in
National Identity Card (attested copy)
Membership Certificate of Chamber of Commerce
National Tax Number / Certificate
Bank Certificate
Affidavit in case of Female Proprietor / Partner / Director
Sales Tax Registration
The fulfillment of these requirements will give the registration to the importer and after
that he can open an L/C with any bank and can import anything.
The Letter Of Credit (L / C)
International trade involves numerous factors such as payment for imports in the
exporter’s country, shipment of goods within the limitations prescribed and difficulties of
enforcing legal rights in the foreign country etc. Therefore, to Overcome these
impediments a system has been enforced, this system is represented by ‘Letter of Credit”.
It is a conditional bank undertaking of payment.
An L/C is a commitment on the part of buyer’s bank to pay or accept draft drawn upon it
provided draft doesn’t exceed a specified amount.
In simple words, it can be defined as; “A bank’s written undertaking given to the exporter
for payment of a certain sum of money on behalf of the importer provided the exporter
tenders to the bank, or its overseas agents, the specified documents within a specified
period in accordance with the terms of the undertaking”.
Basic parties involved in a Letter Of Credit (L / C)
There are four basic parties involved
Importer & its Issuing Bank
Exporter (Beneficiary) & its Advising Bank
Various Shapes OF the Letter Of Credit (L / C)
There are various types of L/C’s used in trade. The main kinds are as follows
Revocable Letter of Credit:
It is the one, which can be cancelled or modified by the issuing bank at any time without
any notification to the seller. Since it offers little security to the seller, it is hardly used in
foreign trade by the exporter.
Irrevocable Letter of Credit:
It is the L/C that can be amended or cancelled only with the agreement of issuing bank,
confirming bank and seller. This L/C gives more security to exporter as compared to
revocable L/C. In Pakistan, all banks including Bank Alfalah Limited-IBD are permitted
to open irrevocable L/Cs only.
Confirmed Letter of Credit:
The letter of credit is that which has the protection of credit standing of importer as well
as exporter’s bank. The exporter’s bank that confirms the Letter of credit takes the
liability of paying agents, in case of issuing bank fails to make payment to the exporter.
Unconfirmed Letter of credit:
Under the unconfirmed Letter of credit the advising bank (through whom the credit is
negotiated) does not give any kind of guarantee to the exporter that the issuing bank will
honor the bill drawn.
Types of letter of credit (L / C)
There are two main types of L/Cs.
Sight L/C
If the beneficiary of a credit is to obtain the payment immediately on presentation of
stipulated documents, it is sight credit. In this form of credit, the exporter draws a sight or
demand draft payable at the counters of the advising bank or the bank specified in the
letter of credit. The draft is paid on presentation if all the other terms of the credit have
been complied with.
In this form of letter of credit the beneficiary or exporter gets the credit from advising
bank immediately after completing all the requirements. Banks usually deal in this type
of letter of credit more because there is lesser risk for both the exporter and the bank.
Bank gets payment from importer before giving him the possession of documents. In
other words, we can say in this type of L/C when importer sights the document he makes
the payment to the issuing bank.
Usance L/C
When a credit is to be paid upon the maturity of a bill of exchange drawn under the terms
of the credit, it is called an Acceptance Credit or Usance Credit or Terms credit. In this
type of letter of credit the payment will be made on maturity of a bill of exchange. This
maturity or tenor of this type of letter of credit varies e.g. 30, 60, 90, 120 days. Exporter
does not get payment on the receipt of documents rather he gets the acceptance on bill
exchange by importer that payment will be made on maturity.
Common Shipping terms used while opening Letter Of Credit (L/C)
C & F (Cost and Freight)
Insurance of shipment is borne by importer, while exporter pays the freight under this
condition.
CIF (Cost Insurance and Freight)
Exporter has to pay both insurance and freight under this condition, but not applicable in
Pakistan.
CIF & C I
When goods are shipped on CIF and C I (Commission and Interest) basis, it means the
price quoted includes cost, freight, insurance, commission and interest.
F O B (Freight on Board)
When freight of goods shipped, is not realized in advance by shipping company, it is
then to be paid by the importer on delivery of goods at the port of destination.
Documents required for opening letter of credit (L / c)
For getting an L/C issued, the importer has to submit the following documents
Performa Invoice:
The foremost document required by the bank for establishment of an L/C is the Performa
Invoice (signed by both the importer & exporter). The exporter issues it. It comprises all
the terms and a condition that has to be mentioned on L/C. Performa Invoice constitutes
the basis of the whole transaction.
Indent:
When the importer and exporter don’t have direct relations and are connected to each
other through an intermediary, called Indenter, then he (indenter) issues an indent form
containing all terms and conditions (like Performa Invoice).
Annexure B:
This is a form in triplicate and must be filled by the importer. The HS (Harmonized
Code) or ITC (International Trade Control) code of the imported goods must be
mentioned. Every commodity has a different universally applicable code. The banker
must check before opening the L/C that the HS code given by the importer is correct.
Form I:
This form is also a part of the SBP’s efforts to check all transactions in which foreign
exchange is involved. The form I also contains all the information about the transaction
along with the importers import registration number.
L/C Form with Adhesive Stamp:
The application form for the opening of an L/C must possess a legal stamp with it. This
stamp is worth Rupees 100. Without a legal adhesive stamp, an application for opening of
an L/C will not be accepted.
Insurance:
It is necessary for the importer to get the consignment insured and provide proof of
having done so.
Promissory Note
“It is an unconditional written promise signed by the maker, to pay on demand or at a
fixed or determinable future time, a certain sum of money to the specified person or to
the bearer of the instrument”. Therefore, to make the payment (by importer) secure, bank
obtains a promissory note signed by the importer, along with the above stated documents.
L/C Margin:
It is a certain percentage of the value of L/C that is retained by the bank as security.
Clauses of letter of credit (l / c)
A letter of credit contains several clauses. The main ones are
Type of Credit:
The heading of a credit indicates the type of credit and its purpose. For this purpose,
every bank has prescribed its own letter of credit forms.
Value of Credit:
The fixed amount to which the bank is liable is specially mentioned in the letter of credit.
Specifications of Documents:
The documents required are specially mentioned in the credit.
Description of Goods:
A brief description of goods that are required by the importer is given.
Part-Shipment and Trans-Shipment:
Part-Shipment means shipment of goods in lots or installments that is in more than one
shipment.
Trans-Shipment means the carriage of goods by more than one vessel or mode of
transport.
The credit must specify whether this can be trans-shipped / part-shipped or not.
Collection of Charges:
The buyer and seller should have been decided as to which party would bear the expenses
because of interest/ markup and other bank charges. The credit specifies the party that
would bear the charges.
Validity Period:
This is a very important clause and because every credit indicates an expiry date or the
validity period. This period is so fixed to provide sufficient time to complete the
transaction.
Reimbursement Clause:
This clause indicates the method for obtaining the reimbursement by the foreign
negotiating bank. It will be discussed elaborately in later part.
Shipping Marks:
If the importer wants that the goods should be identifiable with some special packing
marks, it should be so specified in the credit. This clause is not found in all the credits.
Procedure Of Issuance Of Letter Of Credit (L / C)
After completing the documents necessary for opening the letter of credit the procedure
of issuance of letter of credit starts.
Letter Of Credit (L / C) application form
After having an L/C limit approved, the process of L/C opening starts with L/C
application form. The bank has prescribed a standard application form that contains the
required guidelines, instructions and other relevant terms and conditions under which the
L/C is to be opened and claims from the beneficiary are to be settled.
The application form contains the following
Description of the goods, detail of quantity, unit price, total price and currency
of credit
Instructions about the advice of credit, whether it should be sent by airmail, by
courier or telecommunicated
Form of credit: whether revocable or irrevocable, confirmed or unconfirmed.
Due to permission of irrevocable credit only, it is prescribed on form
The name and address of the beneficiary
Type of credit: whether sight, Usance etc
Validity period of credit and last dates for shipment and negotiation
Port of shipment and port of destination and whether trans-shipment and/or
part-shipment are allowed
Types and number of sets of documents required to be submitted by the exporter
Shipping terms in the contract of sale, e.g., FOB, C&F or CIF etc.
The application form must possess a legal stamp worth Rs. 100. Form without this
adhesive stamp is not accepted. This legal stamp is usually pasted on the
application form before giving it to the applicant.
Banks involved in the processing of letter of credit (L / C)
Starting from the establishment of an L/C, till the retirement of documents, following are
the banks involved in the whole L/C Cycle. The number of banks involved in L/C
Processing may vary from 1 to 6. Only a single bank can perform all the functions
through its different branches.
Issuing Bank (Opening Bank):
Bank opening the letter of credit is called Opening Bank or Issuing Bank. Opening
bank’s undertaking under an irrevocable or confirming L/C is absolute. Therefore, once
an L/C has been communicated to the beneficiary through the bank, the banker has no
option, but to pay provided the other terms and conditions have been fulfilled.
Advising Bank:
The bank that advises the L/C i.e., the bank that physically delivers the L/C to the
exporter on the behalf of the issuing bank. It is a correspondent bank of the issuing bank
situated in the beneficiary’s country or it can also be a branch of issuing bank.
Negotiating Bank:
The negotiating bank receives the documents and delivers to exporter. When the exporter
completes all the documents, after making shipment, the negotiating bank sends them to
the issuing bank.
Reimbursement Bank:
According to ICC Rules, Reimbursement against foreign currency has to be made
through the country originating that currency. Therefore, for dollar transactions,
reimbursement has to be made (received) through the banks situated in USA. When
issuing bank don’t have any branch in USA (for dollar payments), Summit Bankk has
Nostro Account, that bank is known as Reimbursement Bank or Drawee Bank. It is a
correspondent bank of issuing bank and makes payment by debiting the nostro account.
Intermediary Bank (Collecting Bank):
Intermediary Bank is that where the negotiating bank has its Nostro Account and who
obtains reimbursement against L/C from reimbursing bank and gives credit to the
negotiating bank. For dollar payments, intermediary bank would have to be situated in
USA. Similarly, for transactions in GBP, both the Reimbursement & Intermediary banks
would be in UK.
Approval of Letter of Credit (L / C)
When the importer has provided all the required documents for the credit, an approval
sheet is put on top of them. This sheet shows the credit limit of the party and if the tenure
is Sight or Usance. After, the completion of the approval sheet, the L/C is presented to
the local credit committee of the bank for approval.
Communicating Letter of Credit (L / C)
After establishing the letter of credit, it is communicated to the beneficiary through many
intermediaries.
Transmission of Letter of Credit (L / C)
After issuance, the L/C is sent to the advising bank. There are many ways to transmit an
L/C to the advising bank. These are:
Through Airmail
Through Courier
Through Telex
The medium is used according to the instructions of importer mentioned on the top of the
L/C Application form.
Advising Letter of Credit (L / C)
After transmitting the L/C to advising bank, it is advised (physically delivered) to the
exporter, through advising bank. Summit Bank has collaboration with a number of banks
worldwide, for advising its L/C’s. For example, if an L/C has to be advised in Australia,
it can be advised through ABN AMRO or Standard Chartered Bank, Australia.
Negotiating Letter of Credit (L / C) documents
Negotiating bank, after receiving the documents from advising bank, intimates the
exporter. When the exporter makes the shipment and completes all the documents, he
presents them to the negotiating bank. The negotiating bank sends these documents to the
issuing bank, according to the date of negotiation mentioned on L/C, and claims the
reimbursement
Documents sent by the Negotiating bank
Following are the documents sent by the negotiating bank for the settlement of L/C;
Bill of exchange
“A Bill of Exchange is an instrument in writing containing an unconditional order, signed
by the maker, directing a certain person to pay a certain sum of money on demand or at a
future determinable period, to a certain person or to the bearer of the instrument”.
It is drawn by the exporter through negotiating bank (drawer) and is an order for the
importer or issuing bank (Drawee; Summit Bank) to pay a specified amount. In case of
sight bill (for sight L/C), it has to be paid immediately.
Commercial Invoice
Commercial Invoice prepared by the exporter signifies the name and address of importer,
invoice price, invoice number and all the specifications of goods being imported.
Packing List
It is prepared by the exporter to show that the consignment is in accordance with the
order of importer.
Shipment Advice
Shipment Advice is issued for the insurance company to provide every information and
specifications regarding shipment.
Certificate of Origin
This document is a certification for the origin of goods. It certifies that the goods being
imported (or exported) have the origin of a specific country.
Phytosanitary Certificate
The exporter in case of commodities, like medicinal herbs, sends this certificate. It
certifies that the use of goods is not harmful.
Bill Of Lading/ Airway Bill/ Railway Receipt
Bill of Lading is a document issued by the shipping company that stipulates the quantity
of commodity, weight, port of shipment & discharge, date of shipment and other
specifications
Insurance Policy (If Applicable)
If insurance is responsibility of exporter i.e. in case of CIF price, then the L/C issuing
bank also requires the insurance policy along with other documents. Usually, all the
transactions are carried out in FOB or C&F prices.
Covering Schedule
Along with the above stated documents, the negotiating bank sends its Covering
Schedule on which the instructions regarding the whole transaction are prescribed. It also
mentions the number of each document sent by the exporter.
Scrutiny of documents
After receiving all the documents, next and the most important step is to scrutinize the
documents. For this purpose, a list called “Check List of Import Documents” is prepared.
All the documents must be in accordance with the requirements of L/C. In case of any
deviation the documents can be rejected and payment can be stopped. Negotiating bank
must be intimated about any discrepancy found, with in 7 days.
Retirement of Documents
The whole transaction of foreign trade in which an L/C is involved, completes with the
retirement of documents.
The documents that are first lodged in PAD are retired when the importer pays the total
amount (payable). This amount includes the PAD plus the mark-up charged on PAD and
other charges (mentioned on cost memo). Upon receipt of payment, when the documents
are retired, they are given to the importer and he gets the consignment cleared from
custom authorities (by submitting the Bill of Entry).
This completes the whole transaction of Foreign Trade, carried out through a Letter of
Credit.
The Exports Department
Export plays the major role in the economic development of the country; it is the one of
the major sources of earning foreign exchange without additional burden on the
economy.
Conditions for Exporter
Like an importer, there are certain conditions that a person must fulfill to become an
exporter.
The person must be an account holder of Summit Bank Limited.
No one can export any commodity until and unless he/she is a Pakistani and
has a valid export registration with the EPB.
The person must process a valid membership certificate of Trade
Organization, licensed and recognized by Federal Government like a Chamber
of Commerce (e.g. Lahore Chamber of Commerce).
The person must possess a valid NTN (National Tax Number) certificate.
A person cannot export any good unless he files a Form E (E stands for
exports) with his application to the bank.
The person must have the Sales Tax Registration Certificate.
Two key documents
Two major kinds of documents reach the export department;
Letter Of Credit
In simple terms a letter of credits is defined as a bank’s written undertaking given to the
exporter for payment of a certain sum of money on behalf of the importer, provided the
exporter tenders to the bank, or its overseas agents, the specified documents within a
specified period in accordance with the terms of the undertaking. Documentary credits as
they are called, L/C’s have been discussed in detail in the imports section.
Contract
A contract is defined as an agreement, certain and performable, made by competent
parties, with their free consent for the lawful object, and lawful consideration, and if not
expressly declared void.
Another way to define contract is that it is a Mutual understanding between the buyer and
the seller without the involvement of the L/C. involvement of a letter of credit. In this
situation, trade is carried out based on a mutual contract between them.
Complete Export Cycle
The process of export starts with the receipt of the Letter of Credit (or Contract) by the
bank. The issuing bank sends the L/C to Summit Bank Limited,
Branch,GUJRANWALA through the advising bank. Upon receipt of L/C, an intimation
letter is prepared and is sent to the beneficiary of the L/C, advising him that his reached
Summit Bank Limited, NGT Branch, Lahore and he should collect it immediately.
As mentioned earlier, an E-form is necessary for exports out of the country. It is a part of
exchange control mechanism of the State Bank of Pakistan. When an exporter receives an
L/C, the next job is to get an E-form from the bank. After filling in the complete
information about the goods to be exported, the exporter Brings the E-form to the bank
for verification. The bank verifies the contents in accordance with the documents and not
by physical checking. The E-form is a quadruplicate and contains the following
information.
The Commodity
The quantity
The price
The port of shipment
The port of destination
Terms of shipment
Export registration number
After getting the E-form verified from bank, the exporter starts preparing for his
shipment. As the banks only deal in documents, so in order to receive the payment for his
good to be exported, the exporter has to send certain documents to the L/C issuing bank
via negotiating bank. These documents have already been discussed in import section.
A very important step in the export process is to scrutinize the documents, before sending
them to the issuing bank. It requires utmost care and attention of the bank officer. When
the documents are presented in the bank, they are always scrutinized and they must be in
accordance with the requirements stipulated on the L/C. Any deviation could result in
rejecting the documents by the importer, hence causing loss to the exporter or even to the
bank if the documents are to be negotiated.
WORK DONE BY ME
This section is based on my observation and experience and rotation during my internship
at the Multan Road Branch of Summit Bank limited,Lahore. Some of the jobs that I
performed or assisted in performing or overlooked in the various departments were;
Account Opening Department
Inward outward mailing and filing the documents.
Trade Finance
Clearing Department/ Accounts Department/ Remittances Department
Cash department
FIRST THREE WEEKS
Account Opening Department
In first week I was placed in account opening department. In account opening department
I learned about
Account Opening Procedure
The persons who are eligible to open an account
Kinds of Accounts offered by Summit Bank Limited
Documents required by different categories of persons
Issuance of Cheques Book
Details about Loose Cheques
Procedure of closing an account
Procedure of dormant accounts
I worked with Miss Sara in this department. She was often busy dealing with customers
as in this department lots of customers use to come daily. But still she told me a lot about
account opening procedure. She also briefed me how to use bank smart in account
opening department. She use to be very polite with customers as his job requires this. She
use to manage relationships with customers by providing them better services. Therefore,
customers are pleased.
In this department I worked for 15 days and in this span of time I learned different kind
of accounts offered by bank, stamping leafs, entering of books in cheques book issue
book and entries in system.
FOURTH AND FIFTH WEEK
Clearing Department/ Accounts Department/ Remittances Department
As in clearing, accounts and remittances department has very less work to done so they
are combined in single department here in Summit Bank Limited. This department is
collectively called Operations department and 2 people work over here. I worked with
Miss Zamurad Butt .She told me about different activities of this department. Her
attitude was very nice.
First of all he told me about;
Procedure of clearing a cheques
Checking of cheques
Inward and outward clearing
Within bank transfer
Different reason of returning a cheques
Types of clearing stamps
Then she told me about the operations of Accounts department. I learned weekly,
monthly, bi-annually, annually and quarterly reports that are sent to main branch and
head office and even to SBP. Most of these are prepared by system automatically. Two
main functions performed by this department are daily activity checking, report
generation. Main reports prepared are;
Daily Advance And Deposit Position
Daily Exchange Position
Daily Fund Management
Closing Reports
Monthly Budget Review Report
Monthly Monitory Statement
Monthly Performance Review Report
Next she told me about remittances. Here I gained knowledge about inward
clearing and outward clearing. She told me about following things;
Demand draft (D.D)
Pay order (P.O)
Local remittances and outgoing remittances
Schedule of bank charges for remittances
SIXTH AND SEVEN WEEK
Trade Finance
Next week I worked in Trade Finance department with Mr.Iqbal Raza. He is a very kind
person and told me a lot about trade finance department. Although two week period was
very small to get knowledge of whole of this department but still he explained me
everything that she can in this short span of time.
Here I gained knowledge about shipping terms, shipping documents required, and procedure
to open L/C. He also told me about different kinds of banks involved in this procedure are
Issuing Bank, Advising Bank, Negotiating Bank, Reimbursement Bank, Intermediary Bank.
Then she told me role of these banks.
The main activities of this department are divided into two parts; Import and Export. And
requirements for importers and exporters are different. She also told me about Parties of
L/C, Types of L/c, Import license (registration of import in EPB), Import bill, checking a
scrutinizing of documents, Mode of payment.
EIGHTH AND NINTH WEEK
CASH DEPARTMENT:
In eighth week I worked in the cash department with Mr.Usman. He is very
cooperative person he told me about the procedures which are involved in the
receiving and payment of the cash and cheques.
He told me about the things we should keep in mind while taking the cash.
Cheques should be properly checked, the name and account number of the client is
mentioned on the cheque, and it is matched with the entries in the system for the
scrutiny purpose
Utility Bills are also accepted in this department, proper entries are made on the
system hplus. After accepting the bill, the bill is stamped with Summit Bank Limited
stamp which is computerized to avoid frauds and errors.
TENTH AND ELEVENTH WEEK
FINANCIAL ANALYSIS
1. Return on equity =Net income/ shareholders equity
Interpretation
Return on Equity
Years Ratio
2006 20.37
2007 25.72
The return on equity measures return to both common and preferred stock holders. This ratio
has increasing trend in this case, actually the purpose of calculating this ratio is to measure
rate of return to the stock holders, and its increasing trend shows that the return rate is
satisfactory. We see slightly increasing trend in this ratio that is from 20.37 to 25.72 from
the year 2006 to 2007.
2. Capital Adequacy= Total regulatory capital / total risk weighted
exposure
Interpretation
Capital Adequacy
Years Ratios
2006 9.48
2007 9.85
Capital Adequacy is the risk weighted assets to capital, calculated in accordance with
State Bank’s guidelines on capital adequacy. This ratio compares the amount of
eligible capital with the total of risk weighted assets (RWAs). Bank Alfalah monitors
and reports its capital ratios under SBP rules which ultimately determines the
regulatory capital required to be maintained by banks and DFIs. In case of this Bank,
ratio has been increased from 2006 to 2007, which shows that the Bank Alfalah has
eligible amount of capital as compared with total of risk weighted assets.
3. Return on Assets = net income / average total assets
Return on Assets
Years Ratio
2006 0.67
2007 1.04
Interpretation
This is the most important ratio of the entire profitability ratios. The return on
assets is the real determinant of the profit. The ratio shows that company has
increase in this ratio, but this increase is very nominal i.e. 0.67 to 1.04.
Apparently it seems that company profitability increases.
In this ratio apparently it seems that bank’s return on asset increases but it
doesn’t mean bank faces losses but it shows the loopholes in management. As
assets and sales both increases in the year of 2007 as compare to 2006, bank’s
management couldn’t manage this increasing trend properly in 2006 but they
manage increase in sales in 2007. Management fails to give as much increase
in sale in 2006 as the ratio seems in the increase in assets but they stable their
sales in 2007.
4. Earnings per Share = net income / total number of shares
Earning per Share
Years Ratio
2006 2.91
2007 4.82
Interpretation
Earning per share is the amount of income earned on a share of common stock during
an accounting period. Earning per share varies from the bank’s point of view because
it receives much attention from financial community like investors and potential
investors. Therefore bank’s annual report supposed to provide full report of earning
per share. This ratio increases from the year 2006 to 2007, it directly mean banks
earning per share increase, which is a very healthy sign for the company. To attract
the investors company should be increase in this ratio.
5. Stock holder’s return
Stockholder Returns
Years Cash Dividend
2006 0
2007 0
Interpretation
This stock holder return in terms of cash dividend shows that in year 2006 and 2007
the bank fails to give any cash dividend to its stock holders.
6. Stock holder’s return
Stockholder Returns
Year Stock Dividend
2006 33.33
2007 30.00
Interpretation
This stock holder return in terms of stock dividend shows that in 2006 the share
holders has given 33.33% stock dividend but in year 2007 the bank give stock
dividend of 30.00% to its stock holders which is less as compare to 2007. It is good
sign to give stock dividend to share holders.
7. Shareholders equity
Shareholders Equity
Years Amount[Millions]
2006 10573
2007 13767
Interpretation
As compare to year 2006, in year 2007 the share holders equity increase which
means that the investment in the bank increase, the increase in the number of
investors increase their portion of equity in the bank.
8. Liquidity and funding ratio = total advances / total deposits
liquidity and
funding
years ratio
2006 62.63
2007 62.67
Interpretation
An advance to deposits is also liquidity ratio. It shows the relationship and variation
between the advances and the deposits. The trend is declining in 2006 but in 2007 it
increases significantly.
Mostly bank advances the loan on the basis of fixed and saving deposits. We see that
in 2007 bank increase its advances significantly as compare to 2006, the main reason
of this significant increase is that banks fixed deposits and saving deposits in 2007.
TREND ANALYSIS
During a year the bank’s profit before provision and tax stood at Rs. 6906 million compared
to Rs. 3264 million the previous year registering an increase of 53%. This increase in profit
is primarily attributable to overall increase in business volumes.
The above graph is about the values of deposits, advances, imports and exports in 2006 and
2007. There are increase in the value of deposits, advances, imports and exports in 2007 as
compared to 2006. Increase in deposits exports are good for bank but increase in imports are
not good.
TWELVTH WEEK
SWOT ANALYSIS
Strengths
Strengths BAL-IBD is that Pakistan Credit Rating Agency Bank has been
awarded an AA-an A1+ (A one plus) in the long and short term respectively.
Strength is shown from its ratios in most of the ratios it is better than others.
Strength is that assets are increasing and the major asset cash and lending to
financial institutions are increasing which shows the strength.
Earning to total assets is also improving from previous year and it is somewhat
different from others.
BAL-IBD has strong online network system.
Weaknesses
As I have thoroughly study the Bank’s management and financial there is no
such major weak point but one point is that there liabilities are increasing from
year to year and in 2005 it become very high as compared to the previous year.
Another is Bank is decreasing which in my opinion is a weak point.
Equity to total assets is decreasing from previous year.
Opportunities
As far as opportunities are concerned BAL-IBD is growing day by day and its
profits are increasing it has an opportunity to develop more branches to expand
the business.
And there is acceptance of its services so Bank has to increase its services to
meet its customer’s needs.
Threats
There is an increase in the debts of Bank so this can be a threat for the Bank and they
should look upon this.
Another is that debt ratios are increasing due to increase in debts and other banks
have improved ratios so they have to look upon it.
DILEMMAS FACED BY ORGANIZATION
All these problems are faced by the BAL-IBD Wahdat road Branch Lahore
1. BAL-IBD area location is not appropriate. It is far away from the main city.
2. BAL-IBD building is also not properly build and it doesn’t meet the needs of the
Bank
3. Software security is not good. It is open to all restriction. Internal control is not
efficient. Use of Flash drive can cause virus in the system.
4. In BAL-IBD non availability of IT professionals.
5. BAL-IBD direct hiring the staff.
No training after selection
No proper HR
No proper appraisal to evaluate performance of employees.
2. Employees are not holding the proper position.
Finance manager & IT professional is a same person.
3. Sale promotion/marketing department are same in the BAL-IBD.
RECOMMENDATION
o ATM Machine is not working in the bank. ATM is need of the era.
o BAL-IBD branch must be relocated.
o There must be a training before the employees start working in bank.
o Software need a greater security.
o There is an ambiguous authority to utilize the software.
o Account opening dept, has the authority to give reports and show customer
o balance but the same function is also performed by foreign trade, credit and
other depts. It shows that they have ambiguity in utilizing the software as it is
open to all.
o Marketing of Islamic banking products like:- Musharka etc.
o Proper back up should be made available for existing employees.
o In networking, no input control on data.
o Floppy disk, USB should not be allowed, Uninstalled in systems.
o Tests of employees should be conducted on Islamic banking. So that
o employees should become aware of Islamic terms and their meanings.
o IT professional must be hire.
o Human Resource officer should be hired.
CONCLUSION
As I have studied and analyzed BAL-IBD I found out that this a good bank as its working,
management is concerned. First of all the reason of this is that there is no directive style in
the management of Bank Alfalah and which shows that there is decentralization in the Bank
and every branch manager can take decision according to the situation.
Bank Alfalah is providing their customers with wide range of services including online
banking, phone banking and some of their new products in the pipeline, include ATM
network Royal ………….etc shows that Bank Alfalah is taking good care of their
customers. Bank Alfalah made heavy investments, towards enhancing its capabilities in the
area of automation and technology. Bank Alfalah is well positioned to meet client needs,
with improved competitive advantage.
And from the financial and when I conduct comparative analysis with other banks I found
that it is somewhat better than others, and from the analysis of previous year I concluded
that it is improving and in 2007 profits are more than the previous year. So I can say that
Bank Alfalah is performing very well.
REFRENCES
Annual report
Annual report 2009 of Summit Bank Limited (formerly Arif Habib Bank).
Websites
www.summitbank.com.pk
ANNEXURE
